How to Calculate ROI in Your Leadership Development Program

 



Measure ROI in Leadership DevelopmentROI can and must be measured in leadership development and coaching engagements. But, it’s reliant on other building blocks. Here’s what we’ve learned about measuring ROI.

ROI (return on investment) – the elusive measurement lacking in almost every leadership development and coaching program. It’s not uncommon to hear, “you can’t measure it.” Unfortunately, that argument is solidified when people talk about leadership development and coaching as “soft skills” training.

I don’t offer much advice, but I’m going to now – stop using the “soft skills” vernacular. First of all, it has a connotation of, well, being soft. Secondly, there’s nothing “soft” about a leader who isn’t able to stay in relationship long enough with another person to work through a difference of opinion that eventually leads to a business outcome. There’s a real, hard, tangible cost due to ineffective behavioral leadership tendencies.

Here’s an example. Last week, I facilitated an executive offsite. One of the leaders could not figure out how his inability to admit a weakness or ask for help contributed toward a lack of trust on the team. That’s precisely when his peer, the IT leader, spoke up and provided an example of a technology rollout that had occurred over the past 18 months. The conversation led to another executive team member saying that he didn’t speak up about implementation issues because he didn’t think he had enough knowledge of the system. In other words he wouldn’t admit a weakness. The result? Hundreds of thousands of dollars lost on an inefficient and floundering technology rollout because executive leaders on a team failed to effectively communicate with each other.

Is that soft?

Only if you consider losing several hundreds of thousands of dollars due to ineffective conflict and communication skills at the executive team member level.

ROI Building Blocks in Leadership Development

There’s a direct correlation between more effective leadership behavior and business results, and in leadership development and coaching programs it is imperative to demonstrate that through ROI. But to measure ROI, there are a foundational building blocks that you have to put in place early in a program.

  1. Coachees have to establish goals for the engagement. They need clarity on what they are working on and time to reflect on how achieving their goals will impact the business.
  2. Coachees have to understand the behaviors it will take to move the needle on that goal.  We use Coachmetrix to track both goals and behaviors. As a result, by the time leaders are asked to calculate their return on investment, they have clarity and feedback about the impact of their behaviors on others and the business.
  3. Ensure leaders know how measurement will be reported to program sponsors.  This adds an important element of accountability in any program and dramatically changes participant behavior. Here’s an example. Have you ever been to an Orangetheory gym? If so, you’ll know that your heart rate is tracked and published on a monitor along with other people in your workout class. Why do they do that? Because the transparency and accountability leads to changed behavior while on a spin bike that leads to better fitness outcomes. The same is true in leadership development.

Measuring ROI in Coaching Relationships

Once those three building blocks are in place and behavioral change is being measured ongoing throughout a program, then it’s just a mathematical calculation.

To calculate ROI in a leadership development or coaching program, we walk participants through the following 5-step process, springboarding off of the building blocks above.

Step 1: Leadership Goals: What goals were you focused on in the program?

Step 2: Impact of Improvement: As a result of focusing on those goals, what was the impact to people, process and/or the business? Have participants describe what changed.

Step 3: Financial/Business Impact: What were the financial and/or business results that came about? Perhaps there was an improvement in productivity or efficiency. Maybe there was an impact on revenue or cost structure. Better leadership may have led to improved retention or new innovations.

Step 4: Percentage Attributed to Leadership Development: What factors contributed to the improvements? It’s likely that the business impact in Step 3 was due to several factors – not just leadership development. This step prompts the leader to determine how much leadership development contributed to the business outcome. It’s better to be conservative and to underestimate the percentage, as you’ll have to justify your assumptions to executive sponsors.

Step 5: Financial Impact Due to Leadership Development: Multiply the Financial/Business impact from Step 3 to the percentage identified in Step 4 to determine the outcome resulting from your leadership development or coaching efforts.

A Real Life Leadership Development Example

Here’s an example of a high potential Engineering Leader. This fine manager, let’s call her Stephanie, calculated the following based on one of her leadership development goals.

Step 1: Leadership Goals: Provide more one-on-one coaching.

Step 2: Impact of Improvement: As a result of providing better coaching, my team members are better aligned and working on the right things resulting in better quality product releases and fewer bugs.

Step 3: Financial/Business Impact: More efficient development sprints and fewer bug fixes is now saving us 10 hours per month, per person. With five people on the team, we’ve saved 250 hours over a five month period. (10 X 5 X 5 = 250 hours saved). At an average rate of $100 per hour, that’s a total savings of $25,000.

Step 4: Percentage Attributed to Leadership Development: In additional to leadership development, two other factors also contributed to this change including a new People Operations Process and the implementation of a new bug tracking tool. Of those three factors, leadership development contributed 50% of the reason why we are now more productive. (Remember to be conservative with this percentage as you’ll need to justify the numbers to executive sponsors.)

Step 5: Financial Impact Due to Leadership Development: 50% x $25,000 = $12,500 impact.

Once you have your financial impact, you can divide it by the cost of the program to get your ROI percentage.

Our Imperative as Coaches

Calculating ROI is critical in leadership development. Frankly it’s not that hard. But, you have to have the right components in place including clear goals, measurement of ongoing behaviors and communication to let participants know what will be measured and reported. When you do this well, you can start creating your own case studies instead of relying on data from other research organizations that your clients likely won’t find credible anyway.

As coaches, trainers and facilitators, we know that the work we all do is important and making a difference in our workplace and world. Calculating ROI may seem tedious and boring, but having a clear measurement process will ultimately enable us all to do more of what we love – coaching other people.

What’s your experience with ROI? Love it? Hate it? Don’t care about it? Let’s tackle this aspect of leadership development together. Share your opinion on our Facebook page!


 




Sal Silvester
Founder, Coachmetrix